MTSs are computer simulations that teach managers how to make better informed decisions. They present a manager with a lifelike situation simulated by a computer. The manager endeavors to improve the situation. To do this, he analyzes the situation and responds with a decision. Using the model, the computer then calculates and displays the consequences of his decision. If the simulation closely approximates realistic situations, the manager learns how to confront those situations when they arise in the work environment.
MTSs are also called business simulations, business gaming, and business war games. Many business schools, corporate universities, consulting firms, training firms, and human resource departments use MTSs to teach a wide variety of subjects including marketing, finance, accounting, business strategy, supply chain management, and organization design.
There is a great need for this educational technology. People learn best from practical, hands on experience. Yet the primary source of such experience, one's business, is a difficult place in which to learn. Business experiments are not repeatable, decision consequences represent the outcomes of many influences, and the penalties for failure are potentially high. Business risks, costs, and complexity prevent a manager from engaging in the playful, mistake driven experimentation through which people learn best.
The predominant alternative to learning `on the job` are books and classroom study. These methods are also limited. Applying intellectual knowledge to practice is extremely difficult. For example, no medical student is expected to move directly from Gray's Anatomy to surgery.
MTSs overcome the problems of learning `on the job` and of classroom study. They are the ideal means for learning: experiments are repeatable while consequences are discernable and immediate. They condense years of experience into a few hours of study, thereby improving the learning that managers gain from their most limited resource--time. MTSs bridge the distance between intellectual understanding and practice (as cadavers do for medical students). They facilitate practical learning without risking "the patient"--one's career and company.
A manager will gain the following benefits by using MTSs to improve his management skill:
One can test his own strategies and intuitions--the student directs the lesson, rather than the lesson directing the student (as in traditional classroom learning). PA0 MTSs provide more realistic exercises than those found in books or lectures, while still being less complex than real life situations. PA0 MTSs can isolate critical skills. Managers can concentrate on improving these skills without being encumbered by the complexity of the real task. PA0 The consequences of one's actions appear immediately and are easily discerned. PA0 Unlike in one's actual job, there is no penalty for failure. One can experiment risk free. PA0 MTSs facilitate testing ideas before real life implementation (called "what if" experiments). PA0 MTSs increase communication by instigating discussion of strategy and operations and by illuminating business concerns. PA0 1. Each interface collects information describing its student's firm and the marketplace. The firm's characteristics constitute the information describing the student's firm. Information about the marketplace might include, for example, the products previously sent to the marketplace, the prices offered, sales volumes, and competitors' market shares. Each interface displays this information to its student. PA0 2. Using the information presented by the interface, each student determines his firm's decisions for the current round. These decisions might include, for example, pricing products, purchasing manufacturing capacity, and producing products. PA0 3. With an input means (for example, a keyboard or mouse) each student enters his decisions into the interface. The interface sends these decisions to the student's firm. PA0 4. Each student's firm implements its student's decisions. The produced products are sent to the marketplace. PA0 5. Having received the production from all the firms, the marketplace simulates the sale of all firms' products. This simulation might include, for example, evaluating firms' products and calculating demand. For these tasks, the marketplace model will contain a product evaluator (FIG. 2, field 203) for evaluating products and a market manipulator for calculating demand (FIG. 2, field 202). After the sales are determined, the sales' revenues are sent to the appropriate firm. After completing these five steps a round is complete. The next round begins with step one. PA0 1. A student studies the predefined markets and the behavior of the other firms (his competitors). From this analysis, the student develops a business strategy or adjusts his previous strategy. PA0 2. The student enacts his strategy by selecting the characteristics expressed by product attributes, by setting prices, and by distributing his firms' operating budget among business processes (for example, manufacturing, sales, advertising, and research and development). These investments are risky. If the strategy does not produce sufficient revenues, the return on investment will be negative. The firm will lose money and go bankrupt. PA0 1. Students analyze the marketplace results. They identify the prices, quantities, and product traits of products sold in the marketplace. From this information they estimate the size of market segments and the value that customers gain from each product trait. PA0 2. In some MTSs students can supplement the marketplace information by purchasing computer generated marketing surveys. These surveys describe the characteristics of the simulated market (for example, demographic statistics) or the results of simulated standard marketing tests (for example, side-by-side product comparisons or focus group tests). PA0 3. In some MTSs students can supplement the marketplace information by purchasing marketing reports. Among other qualities, marketing reports might list products, prices, new products, products that sold well, products that sold poorly, and sales volume by product type. PA0 1. By analyzing marketplace results, a student can learn the market share, production, prices, and products of competitors. PA0 2. Some MTSs supplement this information with a computer generated `competitive intelligence` report that details competitors' behavior. It might state, for example, the average industry investment in production capacity or in research and development. PA0 1. The prior method of modeling innovation only simulates the outcome of innovation (success or failure). It does not model the processes that produce the outcome. Because of this, prior art MTSs do not offer students the opportunity to experience the process of innovating or the opportunity to learn how to manage innovation. PA0 2. Representing only the outcome of the innovation process, the prior art method of modeling innovation does not represent the role of information, knowledge, and decision making in innovation. As a result, the prior art represents the management of innovation as an investment decision (how much to invest and when) rather than as a task of producing, exploiting, and managing knowledge. PA0 3. The prior art method for simulating technological advance only simulates a small number of new opportunities. Real technological advances create a multitude of opportunities. Because of this deficiency, prior art MTSs cannot provide students with practice in managing through technological change. Moreover, this deficiency will adversely affect an MTSs' dynamics and simulation of competitive markets. PA0 4. Because of the value function used by prior art MTSs, prior art MTS are suitable only for teaching the management of established businesses (low uncertainty situations). These situations include, for example, pricing, designing, positioning, and promoting products in established markets (i.e., basic marketing). This limitation on their effective use arises from three consequences of the value functions that they use: PA0 Because of these three qualities of prior art value functions, known MTSs are not suitable for teaching the management of entrepreneurial enterprises (high uncertainty situations). These situations include, for example, developing new core competencies, developing radical innovations, managing technological change, and reinventing one's business. PA0 5. The prior art poorly models knowledge and knowledge concepts. Because of this, known MTSs cannot usefully address the role of knowledge in a student's decisions or management of his simulated firm (such as, innovation, core competencies, and the management of risk). Neither can the prior art represent the influence of knowledge on an industry's dynamics. PA0 6. Prior art MTSs cannot illuminate nor analyze a student's decision procedures--even though changing these procedures is their goal. Because of this, known MTSs must teach through an indirect method. With repeated simulations of a decision situation, a student tests a variety of ideas and analyzes the consequences. When the consequences differ from his expectations, he is surprised. Through iterative trial, analysis, and surprise, he learns. With this indirect method, a student learns only as well as he invents ideas and induces lessons.
FIG. 1 shows a most general architecture of an MTS. An MTS is composed of four parts: a display for presenting information about a simulated business situation (103); an input device for a person or team learning with the MTS (hereafter called a student) to input decisions into the MTS (104); a simulation of a business situation (101); and a business simulation manipulator (102) for calculating and producing the effects of students' decisions on the business situation. The arrows in FIG. 1 represent the movement of information and decisions in the MTS. The movement of information and decisions is best explained by describing the operation of an MTS. This is as follows: The display gathers information from the simulated business situations and displays this information for the students. After witnessing the information, the students make decisions. The students enter their decisions into the business situation via an input device. Upon receiving the students' decisions, the business simulation manipulator calculates the effects of the students' decisions in the simulated business situation. Information from the affected business situation is then displayed for the students.
An important class of MTS within the general MTS architecture depicted in FIG. 1 is the competitive industry MTS. In such MTSs the simulated business situation comprises a simulation of a competitive marketplace. Competitive industry MTSs teach the management of business functions where markets influence business results; for example, marketing, finance, and business strategy. For simplicity, I refer to competitive industry MTSs as MTSs and refer to the general case depicted in FIG. 1 as the `general case` MTS.
FIG. 2 shows the architecture of an MTS. The simulated business situation is a competitive industry. The simulated competitive industry is composed of at least two types of components: a marketplace model (201) and at least one firm (204) controlled by a student. The marketplace model simulates, among other things, products, customers, market segments, and technology (described below). The marketplace model influences the structure and dynamics of the simulated competitive industry. Each student manages a separate firm. Through their respective firms, students compete against each other for profits and market share in the marketplace. Each firm has several characteristics relating to business processes (for example, manufacturing capacity, the number of salespeople, operating capital, debt, and accounts receivable). The marketplace model and firm model determine the decisions required of students and the lessons learned. Depending upon the characteristics of the simulated marketplace and the simulated firms, MTSs might require that managers compete in several markets and/or manage one or more of several business functions (for example, finance, marketing, sales, customer service, and research and development).
To manage their firm and, specifically, to receive information and input decisions, students use an interface (205). This interface is typically an integration of the display and input devices shown in FIG. 1. However, some business simulations are played as board games (for an example see U.S. Pat. No. 5,056,792). In such board games, the firm model and market models are comprised of a visual display on the game board and a set of rules governing play and hence the display on the board. For example, a portion of the game board might represent firms. Chips placed on this portion of the board represent the firm's characteristics, such as the amount of inventory. Rules determine when chips are added or removed from the board. Another portion of the board represents the marketplace in a similar manner. When an MTS is played as a board game, the interface is the game board itself. Making this distinction, one versed in the art will recognize that the general descriptions of MTS given throughout this document apply to both board games and computer simulation MTSs.
The arrows in FIG. 2 represent the movement of information, revenues, and decisions in the MTS. The movement of these objects is most clearly explained by describing the operation of an MTS.
Each application of an MTS is called a learning session. A learning session progresses through rounds where each round consists of the following sequenced steps:
The following description focuses upon marketplace models and product design to facilitate the discussion of MTSs in general. MTSs require a marketplace model which represents both products and markets. MTSs also require students to perform three tasks: (1) analyze the marketplace and competing firms, (2) design products and set prices, and (3) invest in business processes. The following describes how MTSs' represent products and markets and how they supply the structure required to facilitate the students' performance of their required tasks.
Products:
Products in known MTSs generally include three types of product traits: business process traits, aggregate traits, and attributes. Business process traits represent the outcome of business processes, such as customer service level and delivery delays. Aggregate traits describe the whole product, such as product quality and product reliability. Attributes represent specific features comprising a product. Attributes can vary quantitatively (for example, amount of calories in one serving of a breakfast cereal) or qualitatively (for example, a product's color). The values that attributes can express are called characteristics. The set of characteristics that an attribute can express is referred to as the attribute's domain. The composite produced by the characteristics expressed by a product's attributes is called a product's design.
Product Classes:
A product class is the set of products consisting of all the possible values for a product vector. Real world examples of product classes are sports cars and long distance phone service. A specific product is identified by its class and its traits. For example, suppose sports cars have three traits: customer service, delivery delay, and product quality. Suppose also that customer service and product quality are measured with a ten point scale. A specific product in the sports car product class is a sports car with a level five customer service, two week delivery delay, and a level seven quality.
To provide more realistic decision situations, some MTSs furnish several product classes, for example sports cars and luxury cars. Multiple product classes are defined by declaring their existence. For example, an MTS might declare three classes of products (classes A, B, C) by declaring three types of product vectors of the type described above. Each product class can have the same traits, but this is not necessary.
Markets:
Demand for products is simulated in prior art MTSs using a demand function for a market manipulator (FIG. 2, field 202). In most MTSs, the market manipulator is a set of equations. For examples see: Steven Gold and Thomas Pray, "Modeling Demand in Computerized Business Simulations," in Jim W. Gentry (ed.), Guide to Business Gaming and Experiential Learning, Association for Business Simulation and Experiential Learning (East Brunswick: Nichols/GP Publishing, 1990), pp.117-138. The market manipulator takes the firms' production as input and calculates the total size of the market and the share of demand for each firm. This demand is then compared to firms' actual production to determine sales. When equations are used, the parameters of the equations permit an MTS designer to adjust the industry and firm specific demand elasticities for each product trait. In addition, by using multiple sets of these equations MTSs can represent multiple market segments (for example, customers who value quality over timely delivery or vice versa) and/or multiple markets (for example, the Canadian and the United States automobile markets).
It is notable that, usually, the market manipulator does not directly receive product characteristics as inputs (as independent variables). Instead, a product's characteristics are used to produce a single number that represents a market's evaluation of a product's design. I call this number a product's value. The conversion is produced by a product evaluator (FIG. 2, field 203). In most MTSs, the product evaluator is an equation v=h (a.sub.1, a.sub.2, . . . a.sub.n), where v is the value of a product, n is the number of attributes comprising products, and a.sub.1, a.sub.2, . . . a.sub.n, are the attributes that can express characteristics in the product. I call this equation a product value function. The product value function has the effect of removing a product's attributes from the product vector and replacing them with a single aggregate product trait: product value. The market manipulator accepts this trait as an input. As described in detail in the closing remarks below prior art MTSs evaluate pro duct v alues using a distance value function.
Management Decisions:
Students are told what product classes, market segments, and markets exist and the product traits comprising the products of an MTS. With this knowledge, students control a firm and compete in the simulated marketplaces by producing products from one or more of the declared product classes.
Each student manages his firm by performing the following tasks:
The tasks of market analysis, competitor analysis, and investment in business processes are described below.
Market and Competitor Analysis:
Students analyze the marketplace through three methods:
Students analyze competitors using two methods:
From a student's marketing and competitor analysis, he develops a business strategy. The business strategy states a focus on specific product classes, markets, and market segments. It states the desired values of product traits, prices, and production volumes. A student enacts his strategy with three decisions: set the attribute levels, set the prices of its products, and invest in business processes. These decisions are described below.
Setting Product Attributes and Price:
Students set the characteristics expressed by their products' attributes. In setting characteristics, a student determines a product's design and is essentially designing a product in the simulation. The only restrictions on product design are the domains of the attributes. For example, quantitatively varying attributes might be bounded by minimum and maximum values. Likewise, qualitatively varying attributes might present students with a limited number of characteristics to choose from. Students also select their products' prices, subject to range limitations (for example, prices must be positive numbers).
Investing in Business Processes:
Students improve their product's business process traits and aggregate traits by investing in their firm's business characteristics (for example, purchasing/scraping production capacity, retooling a factory, hiring new salespeople, or purchasing more advertising). The results are determined by equations that take the firm's characteristics and the student's investment decisions as the independent variables and yield the values of business process traits.
Equations giving a firm's characteristics can affect either business processes traits or firm characteristics, such as labor productivity. For examples of the use of equations in determining business process traits and firm characteristics, see: Steven Gold and Thomas Pray, "The Production Frontier: Modeling Production in Computerized Business Simulations," Simulation and Games, vol. 20 (September 1989): pp. 300-318; Precha Thavikulwat, "Modeling the Human Component in Computer-Based Business Simulations," Simulation and Gaming, vol. 22 (September 1991): pp. 350-359; Steven Gold, "Modeling Short-Run Cost and Production Functions in Computerized Business Simulations," Simulation and Gaming, vol. 23 (December 1992): pp. 417-430; and Precha Thavikulwat, "Product Quality in Computerized Business Simulations," Simulation and Gaming, vol. 23 (December 1992): pp. 431-441.
The closing remarks below provide a more detailed description of the prior art of MTS and also provides a general description of the prior art methods of modeling innovation, modeling technological advance, and the prior art product value functions.
The prior art MTSs suffer from six primary deficiencies:
4.1. Students can choose any attribute, leave all other attributes unchanged, and increase a product's value by improving the characteristic expressed by the chosen attribute (assuming the chosen attribute is not already expressing its ideal characteristics). Because of this, a student can address each attribute independently. PA1 4.2. By making a series of small changes in a product's design, a student can produce a sequence of designs such that (1) each subsequent design increases product value and (2) the sequence ends with the ideal product. Furthermore, this property holds regardless of the order in which a student addresses the product attributes. PA1 4.3. The marketplace information produced by prior art MTSs is highly reliable. Information about the value of products provides a lot of information about the value of all other products.
The present invention improves over the prior art by creating a new modeling relationship between a product's design and its value. The consequences of this change are great. The present invention provides a superior model of innovation and technological advance, highlights the role of information and knowledge in management and in an industry's dynamics, and provides a means of explicitly representing a student's development and application of knowledge.